History of ERP and Why It is More Important than Ever

Have you ever wondered what the history of Enterprise Resource Planning (ERP) is and why ERP is more important than ever? Understanding the past of ERP can provide insight into what this business management software is all about and how it can benefit your organization.

In this article, we’ll explore the evolution of ERP and how recent events, such as the COVID-19 pandemic, have impacted its importance in today’s business world.

What is Enterprise Resource Planning?

Enterprise Resource Planning (ERP) is a suite of software that integrates key business processes, including finance, sales, purchasing, inventory, and manufacturing, to streamline and optimize the flow of information within an organization. It captures business transaction data for planning, management analysis, and reporting, allowing for seamless and efficient execution of processes from orders to cash.

ERP systems are characterized by:

• An integrated system from “order to cash”
• Real-time operation
• A common database supporting all applications
• A consistent look and feel across modules
• Resource planning capabilities
• Deployment options include:
  • on-premises,
  • cloud-hosted, and
  • SaaS (Software as a Service)

ERP Google Trend and COVID-19

The impact of COVID-19 on Enterprise Resource Planning can be seen in Google Trends on the search for “Enterprise Resource Planning”.

The above Google Trend graph displays the Google Trend for the Google search for “Enterprise Resource Planning” for the last 5 years until mid-December 2022.  I highlighted the periods when COVID-19 first appeared in late 2019 and when there was a supply chain disruption from late 2020.  We can observe the following:

1. The interest in Enterprise Resource Planning has been increasing and about doubled in the last 5 years.
2. COVID-19 initially caused a steep drop in the interest in ERP but later accelerated its increased interest.
3.  The supply chain disruption since 2020 appeared to accelerate the interest in Enterprise Resource planning.

So, how did these events affect the increased interest in Enterprise Resource Planning?

History and Evolution of Enterprise Resource Planning

To appreciate the impacts of these events, it is important to understand what  Enterprise Resource Planning does.  And one of the ways to understand it is through understanding its history and evolution.

The history of Enterprise Resource Planning (ERP) can be traced back to material requirements planning (MRP) systems in the 1960s, when J.I. Case, a manufacturer of tractors and construction machinery, partnered with IBM to develop the first MRP system. Later, large manufacturers built their own MRP solutions.

MRP systems evolved into material resource planning (MRP) in the 1970s and 1980s, which added functionality to answer questions such as which inventory to replenish, when to replenish it, and in what quantities. Manufacturing resource planning (MRP II) systems also emerged in this time period, adding production resource planning to the mix.

In the 1990s, ERP developers began integrating other enterprise resources, such as accounting (financial resources), sales, and purchasing functions, and other business processes. This led to the development of enterprise resource planning systems, which we know today as ERP.

In the 2000s, the increased affordability and maturity of the web made it a common business requirement for companies to access their ERP systems through the internet. ERP systems evolved to allow operation through HTTP web access or thin-client technology.

In the 2010s, many ERP systems developed HTTP compatibility, allowing them to be hosted on web servers and accessed through web browsers or web clients. This marked the beginning of Software as a Service (SaaS) for ERP, where users pay rent for the use of the system instead of purchasing it outright.

During the same period, ERP developers adopted a new strategy, shifting away from building all functionalities in-house due to the high cost of development and maintenance. Instead, they created the concept of Value-Add-Reseller (VAR), in which ERP principals developed core functionalities and software architecture that allowed third-party developers to build specialized add-ons or extensions. These add-ons work as additional modules that could be integrated into the ERP software to handle specific business needs such as e-commerce and retail point-of-sale. This approach allowed ERP developers to offer a wider range of functionality while also reducing their own development and maintenance costs.

In the 2020s, the application of analytics and artificial intelligence (AI) has increased in ERP systems. These technologies work with data and, in enterprises, ERP databases capture the most business information to feed analytics and AI, helping management make timely and informed decisions.

ERP systems have evolved from their roots in MRP and MRP II, and will continue to evolve in the future. Today, many companies use ERP systems to integrate their business processes and streamline their operations. However, since early 2000, some software developers started labeling their products as ERP even if they don’t include the foundational elements of MRP and MRP II, using the term as a marketing tactic to suggest that their software integrates business processes. It’s important to carefully evaluate the capabilities and features of an ERP system to ensure that it meets your organization’s needs.

Benefits of ERP

Enterprise resource planning (ERP) systems are designed to integrate and manage various business processes and functions, including:

• Financial management: ERP systems can help streamline financial processes, including accounting, budgeting, and forecasting.
• Supply chain management: ERP systems can help manage the flow of goods and materials, including the procurement of raw materials, and the production, and distribution of finished products.
• Human resources management: ERP systems can help manage employee information, including payroll, benefits, and training.
• Customer relationship management: ERP systems can help manage customer data and interactions, including sales, marketing, and customer service.
• Project management: ERP systems can help manage project tasks, resources, and budgets.
• Inventory management: ERP systems can help manage inventory levels, including the tracking of raw materials, finished goods, and supplies.
• Manufacturing: ERP systems can help manage manufacturing processes, including the scheduling of production, tracking of materials, and quality control.
• Data analysis and reporting: ERP systems can provide real-time data and analytics, helping organizations make informed business decisions.

Overall, the benefits of ERP systems include increased efficiency, improved data accuracy, better decision-making, and greater agility in responding to changing business needs.

In particular, ERP systems can improve efficiency, decision-making, and agility which is important in today’s business environment:

• Efficiency: ERP systems can help improve efficiency by automating and streamlining various business processes, such as financial management, supply chain management, and HR management. This can help reduce the time and effort required to complete tasks and can also help reduce the risk of errors.
• Decision-making: ERP systems can provide real-time data and analytics, which can help organizations make more informed business decisions. For example, an ERP system can provide data on sales trends, inventory levels, and customer behavior, which can help organizations identify opportunities for growth and identify potential problems.
• Agility: ERP systems can help organizations respond more quickly to changing business needs. For example, if an organization needs to pivot its product line due to changes in consumer demand, an ERP system can help it quickly modify production schedules and supply chain processes to meet the new demand.

Overall, the benefits of ERP systems can help organizations operate more efficiently, make better decisions, and respond more quickly to today’s changing business needs.

Why ERP is More Important than Ever

The increasing interest in Enterprise Resource Planning (ERP) can be attributed to its many benefits, particularly in times of crisis and uncertainty.

Pre-COVID Periods – Achieving Efficiency

Prior to the COVID-19 pandemic, the growing popularity of e-commerce and improving business conditions made ERP increasingly important for companies looking to operate and compete efficiently. As businesses faced higher volumes of business activities with increased complexity and rising labor costs, ERP systems became a valuable tool for achieving efficiency.

First Year after the Occurrence of COVID-19 – Surviving with Agility

When the negative impact of COVID-19 became more widespread in early 2020, companies initially were cautious about spending and focused on survival. As the benefits of ERP can take months or even years to be apparent, ERP projects were often placed on the back burner. This led to a dip in Google Trend data for ERP.

However, the lockdowns and quarantines that followed forced employees to work remotely, leading to a surge in e-commerce and a corresponding increase in interest in ERP solutions, particularly cloud-based systems. Companies began to recognize the importance of ERP in enabling them to operate from anywhere and sell to any customer.

Late 2020 to Early 2022 – Decision Making and Agility

This period saw unprecedented supply chain disruption due to both COVID-19 lockdowns and the Ukraine war. These events further accelerated the interest in Enterprise Resource Planning, as companies needed to rapidly adjust their operations. ERP systems are an excellent tool for agile decision-making in times of crisis.

Looking Ahead

The interest in Enterprise Resource Planning has roughly doubled in the last five years and is expected to continue to grow as companies navigate the “new normal” and the need for efficiency, agility, and informed decision-making becomes increasingly critical.

Conclusion

The importance of Enterprise Resource Planning (ERP) cannot be overstated, and it will only become more critical in the face of ongoing business disruption. Ensuring that you have the right ERP system in place and optimizing it to meet the changing needs of your organization is vital to your success.

Gaining a thorough understanding of ERP systems can take time and experience, but if you don’t have the luxury of waiting, seeking external guidance from a reputable consulting firm like 1st ERP Consulting can help minimize risk and maximize your return on investment (ROI).  1st ERP Consulting specializes in helping companies select the most appropriate ERP solution and maximizing ROI, minimizing total cost of ownership (TCO), and mitigating risks of your new or existing Enterprise Resource Planning (ERP) solution.

Learn more about the author, Raymond Yap, and how 1st ERP Consulting can help your business.

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